Curb Illegal Transactions

Fiscal discipline is an important element of sound and robust economic development. Rules and regulations are not only meant to maintain law and order but also curb illegal financial activities, particularly money laundering and terrorist financing. If the suspicious transactions occur surreptitiously, this hints at the high possibility of corruption, tax evasion, fraud and other kinds of financial crimes, which have negative consequences for the economic and social sectors. These days, international financial regulatory bodies monitor suspicious transactions and ask the country to take stringent measures against them. Failure to comply with their instructions and suggestions risks the country falling into the 'Jurisdictions under Increased Monitoring' - commonly known as the 'Grey List'.

So it is essential to prevent money laundering because it erodes the country's image, discourages foreign investment and causes tax revenue loss. Other repercussions include the distortion of market prices, inflation and economic instability. When the illicit business rules the roost, the legitimate investors are displaced, with the financial system becoming vulnerable to external and internal shocks. Unnatural spike in the suspicious financial activities also invites foreign sanctions and isolation, which proves to be detrimental to the sustained and inclusive economic growth and capital formation. The digital revolution has not only made the financial transaction smooth, easy and fast but also complex, with loopholes that are abused to avoid tax and legal scrutiny.

Since February 2025, Nepal has been on the "grey list" and is working with the Financial Action Task Force (FATF) to exit the list. However, a report of the Financial Information Unit (FIU-Nepal) at the Nepal Rastra Bank (NRB) has shown disappointing facts: Suspicious Transaction Reports (STRs) and Suspicious Activity Reports (SARs) have approximately increased by 49 per cent in 2024 compared to the previous year 2023. A news report of this daily stated that in 2024, the FIU received 9,304 suspicious transaction reports, up from 6,255 in 2023. Of them, 1,894 reports were analysed while 1,086 were forwarded to law enforcement and regulatory bodies for further action. The rest 808 were archived for potential re-analysis in case new information is received. These transactions were high-value and crossed the set monetary limit. 

Commercial banks have reported the largest number of cases (7713), followed by development banks (612), finance companies (303), stock brokers (290) and payment service providers (166). The rising number of suspicious transactions might pose further hurdles to the country's efforts to fight money laundering and terrorism financing.  FIU-Nepal, which acts as the primary contact point for communication between FATF- International Cooperation Review Group (ICRG) and APG for Mutual Evaluation and Post-Mutual Evaluation process, needs to be equipped with technology and adequate human resources so that anti-money laundering (AML) laws are effectively enforced and illegal transactions are reduced. 

The government has already amended 19 money laundering-related acts and brought new Money Laundering Prevention Rules (2024), and the National Strategy and Action Plans (2024/25-2028/29). There is a need for effective coordination between domestic and international agencies to overcome deficiencies in the AML system. Meanwhile, FIU-Nepal incorporated Designated Non-Financial Businesses and Professions (DNFBPs), such as casinos, Dealers in Precious Metals and Stones (DPMS), real estate agents, and hire purchase loan providers, into the goAML system. Effective implementation of laws and action plans with the backing of political, bureaucratic and business sectors will enable a drastic reduction in suspicious transactions, thereby paving the way for the exit from the grey list.